Abrogation of cellular responses to Bone Morphogenetic Proteins (BMPs) and other members of TGF-( superfamily are associated with human bone diseases such as osteoporosis, pulmonary hypertension and heritable cancer. Our long-term objective is to understand the molecular basis of how BMP/TGF-( regulate cell growth and differentiation, and the underlying mechanisms through which alterations in BMP signaling leads to deregulation of growth and differentiation control in human bone diseases. BMPs induce the differentiation of mesenchymal cells towards the osteoblastic lineage to promote bone formation. One of the most critical events in activation of BMP signal transduction pathway is the phosphorylation of transcription factor Smad1/5/8 (collective term for Smad1, Smad5 and Smad8) by BMP receptors. While phosphorylated Smad1/5/8 directly activate the target genes in the nucleus, protein phosphatases are anticipated to dephosphorylate phospho-Smad1/5/8 and consequently inactivate BMP signaling. The identity of the long sought-after phosphatase has been one of the major unanswered questions in BMP/TGF-( biology until very recently. We have discovered that Smad1/5/8 can be dephosphorylated by several phosphatases. Our short-term strategy for this proposal is to characterize biochemical properties of the phosphatases and investigate their biological functions in the regulation of BMP signaling during osteoblast differentiation. Our preliminary studies (both published and unpublished) lead us to hypothesize that Smad phosphatases block or terminate BMP signaling during osteoblast differentiation. Thus, it is significantly important to investigate the physiological roles of Smad phosphatases in bone formation. In this application, we will focus our study on the functions and molecular mechanism of Smad dephosphorylation during osteoblast differentiation. Three specific aims are proposed: Aim 1: Biochemical characterization of Smad phosphatases for dephosphorylation of BMP-specific Smad1/5/8. Aim 2: Elucidation of the functions of Smad phosphatases-mediated Smad dephosphorylation in BMP signaling. Aim 3: Investigation on the roles of Smad phosphatases in osteoblast differentiation from mesenchymal stem cells. The proposed experiments will open a new area of research on how Smad phosphatases modulate BMP signaling pathways through Smad dephosphorylation. Specifically, the elucidation of the physiological roles of Smad phosphatases-mediated dephosphorylation of Smad1/5/8, and perhaps other R-Smads as well, will provide insights into the important role of BMP/TGF-( signaling in bone growth and development. PUBLIC HEALTH RELEVANCE: The major goal of this research proposal is to investigate the functions of protein phosphatases in bone formation. We have identified three phosphatases as negative regulators of bone morphogenetic proteins (BMP). Our results will be pertinent towards the development of novel therapeutic approaches for the prevention and treatment of human bone diseases.